Court validates bank scrutiny
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share thisAs Congress wrestles with the future of bank regulation amid financial services scandals, a Supreme Court decision announced Monday stands as a major blow for consumers.
The court ruled, 5-4, that state attorneys general may investigate national banks with branches in their states, as long as they clear their subpoenas through the appropriate courts.
National banks that had been under investigation in New York state had argued that their national charters precluded state-level investigations. Former New York Attorney General Eliot Spitzer had launched an investigation into whether the national banks had engaged in predatory lending in New York. The 2nd Circuit Court of Appeals in New York City later ruled that only the federal comptroller of the currency had the power to seek some of the data that had been sought by Mr. Spitzer.
The Supreme Court found, however, that state-level investigations are valid with court supervision, if they seek only to enforce state, rather than federal, laws.
That's important because it adds a key level of scrutiny to bank operations in the markets where the banks actually conduct business.
The ruling stands not only as added protection for consumers, but as a cautionary tale to Congress as it ponders similar issues regarding another key offender in the global financial crisis: the insurance industry.
Big insurers have been trying to get Congress to establish national insurance regulation to supersede state regulation. It would be foolish, however, to eliminate state scrutiny of insurance operations in the markets where the companies conduct business.
Taking a cue from the court's validation of state-level investigation of national banks, Congress should not eliminate that same level of regulatory protection regarding insurers.
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